Less oil means new opportunities for SKAGEN Vekst

Despite having delivered good absolute returns, the past few years have been challenging ones for SKAGEN Vekst. Norwegian oil stocks in particular have taken their toll on the fund. However, we are now seeing a change in developments, thanks to the broad composition of companies in the portfolio.

Date: 27/05/15

Carlsberg is one of the Nordic companies in SKAGEN Vekst. Photo: Carlsberg

The past six quarters have been challenging. What have you done to turn things around?

- We have not made any drastic fundamental changes on the basis of the relatively short-term fluctuations in the portfolio. Our strategy is value based and we stick to our active stock picking philosophy. Over the past year, however, we have made a substantial change to the portfolio for other reasons. At the start of 2014, half of the fund’s mandate changed from a Norwegian to a Nordic mandate. This has given us several opportunities, one of which has been to reduce our positions in Norwegian oil-related companies. Norway has significant exposure to the oil industry and has struggled with falling oil prices over the past year.

What impact does the half global, half Nordic mandate have on the fund?

- The mandate change provides us with better opportunities to pick the right high quality stocks from all over Scandinavia. This is a process that will take time as most high quality Nordic stocks are expensive and we will not deviate from our value based investment philosophy. Over the next few years our focus will continue to be on good companies that show stable growth and solid leadership with the potential for good returns.

Will you be selling all the Norwegian stocks in the fund?

- Our most important task is to find companies that create value over time. In this context, a company’s nationality is irrelevant. Since the beginning of 2014 we have reduced the Norwegian component of the fund from around 50 percent to around 22 percent today. Numerous small and medium-sized positions have been sold. Norway only makes up 6-7 percent of the Nordic index, which our fund measures itself against. The majority of our Norwegian portfolio is currently divided between our two large positions in Norwegian and Norsk Hydro. These are two companies which, according to our analysis, still have great potential to deliver excess return.

Can you give some examples of Nordic companies that you have brought into the portfolio?

- Some of our relatively new Nordic investments include Carlsberg, Volvo and TeliaSonera, all of which contributed positively to the fund’s performance in the first quarter of the year. Common to all three companies is that they had an attractive valuation compared to the return potential at the time of investing. They are very typical of the type of companies we are looking for. Carlsberg, for example, was traded at a discount of 30 percent relative to the cash flow estimate we see for the company.

SKAGEN Vekst has beaten its benchmark index by a good margin in April and May. What has happened?

- Expensive companies have fallen considerably in value lately. Since we try to avoid investing in these types of company, SKAGEN Vekst has not been affected as much by this as the benchmark index. Our companies have a lower valuation than the market, despite the fact that their growth and earnings levels are in line with the market. This is where we believe our companies will deliver excess return in the long term.